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Kyrgyzstan: Looking For Ways to Avoid Hydropower Debt

Feb 18, 2016

Authorities in Kyrgyzstan are hunting for an excuse not to pay back a Russian state energy company the $40 million or so it spent on building a hydroelectric power plant that never got completed.

That inevitably means that they will find one.

Last week, a commission led by member of parliament and former justice minister Almanbet Shykmamatov toured the abandoned complex serving the Upper Naryn hydro plants that Kyrgyzstan and Russia agreed to build in 2012.

If the commission is to be believed, there was plenty of funny business involved in tenders for the failed project, which was led by troubled energy giant RusHydro. Parliament in Kyrgyzstan last month voted to scrap the $727 million deal in addition to an even bigger deal for a separate hydro plant built by Moscow's Inter RAO company, citing lack of progress.

One nugget Shykmamatov’s commission has unearthed is that a company that performed the $250,000 environmental audit for the power plant — Chui Ecological Laboratory — was registered to the wife of an employee of the state environmental agency at the time it won the tender.

The company had been re-registered in her name days after the tender was announced, according to the commission, while four other local companies that won tenders worth between $1.5-2 million (adjusting for rate changes) were set up during the same period.

Two of those have since vanished without account, having made off 14 million soms (currently worth around $200,000).

According to news website Kloop.kg, which published results of an investigation into the tenders on February 17, at least $7 million out of the reported $37 million that RusHydro says was spent on the project is not accounted for by publicly available tender information.

This post-mortem is rather embarrassing all round and raises the usual questions about how Russian state companies do business in the former Soviet Union, as well as questions about whether Kyrgyzstan and Russia are now entering an icy patch in their bilateral relations.

Since it was never clear whether Russia really intended to build hydropower stations in Kyrgyzstan, it is also not evident how the Kremlin now feels about Kyrgyzstan’s decision to annul the agreements and begin a “search for different investors”, as pro-Russian President Almazbek Atambayev promised in an end-of-year press conference.

More apparent is the fact RusHydro has not relinquished its claim for the money it says Kyrgyzstan owes it, and that the Central Asian country is in desperate need of those new investors. (Curiously, nobody in government appears yet to have made the point that RusHydro should perhaps forfeit its investments since it signally failed to keep up its end of the bargain).

Simply put, Kyrgyzstan's energy infrastructure is falling apart.

Towards the end of last year, the country’s main current source of electricity at present — the Toktogul hydropower electric station — suffered two major accidents that forced the government to turn to Kazakhstan to negotiate a snap deal on electricity imports.

Prime Minister Temir Sariyev seemed to understand the extent of the crisis when speaking at a meeting with workers at the Toktogul plant on January 2.

“The accident at the Toktogul hydropower plant was a wake-up call that demonstrates once again that it is time to upgrade equipment at the hydropower facilities in the country. This should have been done 15 years ago. The cables that broke down were in operation for over 40 years, while having a lifespan of 25 years. Accordingly, they are outdated and have become worthless,” Sariyev said.

But with Bishkek perennially broke, Moscow not far behind and other countries seemingly unwilling to pour money into Kyrgyzstan’s famously murky energy sector, the search announced by Atambayev could be a long one.